TaxTMI 
TaxTMI 
1998 (5) TMI 334
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....of Rs. 23.67 crores (approxi-mately) as due to it as on 24-12-1996. Earlier the Single Judge of the Bombay High Court in his order dated 10-1-1997 had disallowed the application for appointment of receiver in view of the stay of appointment of provisional liquidator granted by a Division Bench of the Bombay High Court in winding up proceedings on 20-12-1996. 3. Civil Appeal (arising out of SLP (C) No. 14750 of 1997) is filed by the appellant-company against the order passed by another Division Bench of the Bombay High Court dated 8-8-1997 in Appeal No. 1193 of 1996 by which the order of the learned Single Judge on Company Side appointing a provisional liquidator on 18-10-1996 was affirmed. Thereby an earlier order of stay dated 20-12-1996 (granted by the Division Bench in respect of the Company Judge's order dated 18-10-1996) stood vacated. The respondents are Vardhman Spg. & General Mills Ltd., the creditors, who filed the winding up petition 415 of 1996 on 6-8-1996 against the appellant in the High Court of Bombay. 4. Civil Appeal (arising out of SLP (C) No. 15736 of 1997) is filed by the workmen (Engineering Kamgar Sangh) against the order dated 8-8-1997 passed by the ....
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....he receiver had taken formal possession of the properties. This assertion was no doubt denied by the Company. This Court also noticed that the High Court of Bombay had, in its order dated 8-8-1997 accepted as true the serious allegations made by the Canara Bank against the appellant-company. 8. At this stage, it is necessary to refer to the conduct of the Company, already adverted to, which came up for severe criticism by the High Court of Bombay in its order dated 8-8-1997. What happened was that after securing a stay order from the Division Bench on 20-12-1996 - in respect of the order of the learned Single Judge appointing a provisional liquida- tor, - the company obtained adjournments before the Division Bench on 4-11-1996, 2-12-1996, 9-12-1996, 18-12-1996, 20-12-1996. On 20-12-1996, the case was adjourned to 22-7-1997 when an affidavit was filed - without disclosing that the Company had approached the BIFR on 17-7-1997 - and the matter was got adjourned to 29-7-1997 and again to 8-8-1997. The factum of registration of the reference by the BIFR on 24-7-1997 was not disclosed to the High Court till 8-8-1997. The Bench, therefore, rightly criticised the conduct of the appellan....
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....had submitted a report and that on that basis and on the basis of the submissions made, 'the Company was to be declared as a sick industry' under section 16 read with section 3(o) of the Act. It then said that it is necessary in the public interest to adopt the measures specified in sections 18 and 19 of the Act in relation to the Company. It accordingly appointed IDBI as the Operating Agency under section 16(2) and directed it under section 17(3) to prepare a rehabilitation report. The company was directed under section 22A, not to alienate any of its assets. (iii)A notice was issued by the BIFR fixing 15-12-1997 as the date on which the allegations of the Canara Bank against the company would be heard. On 15-12-1997, the BIFR passed further orders after hearing the Bank's representatives observing that the allegations made by the Bank against the Company had been considered by the IDBI and that the IDBI had prepared a status report and that the BIFR was satisfied that the allegations of the Bank against the company - in regard to the change in the accounting year and provision for depreciation and interest and in regard to the prepara-tion of the balance sheet - co....
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...., the reference to the BIFR must be treated as vitiated and as amounting to 'fraud' and, therefore, all consequential orders of the BIFR must be ignored. 12. On the basis of the above contentions, the following points arise for consideration: (1)Could it be said that the conduct of the appellant-Company before the High Court on account of the contrary pleas taken by it before the High Court and the BIFR and on account of the suppression of facts, - would render the reference under section 15 and the registration of the reference and the subsequent orders of the BIFR bad? (2)Whether, once the BIFR had registered the reference dated 17-7-1997 on 24-7-1997 under section 15 of the Act read with the Regulations, it was permissible for the Division Bench of the High Court to pass orders on 8-8-1997 vacating the stay order dated 20-12-1996 and confirming the appointment of provisional liquidator on the company side and also whether it was permissible for another Division Bench of the High Court to appoint a receiver on 28-7-1997 in the proceedings arising out of the suit, in view of section 22? 13. Point 1: It is true that in the winding up proceedings and in the civil....
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....efer to the relevant provisions of the Act and Regulations and the headings of the Chapters in the Act and the headings of the Chapters in the Regulations. 18. Chapter III of the Act contains section 15 to section 22A and bears the heading 'References, Inquiries and Schemes'. Section 15 refers to the 'Reference to Board' either by the industrial Company under sub-section (1) of section 15 or by the Central Government or the Reserve Bank or a State Government or by a public financial institution or by State local institutions or Scheduled Banks. Section 16 refers to 'Inquiry into the working of Sick Industrial Companies' and to the declaration of the unit as a sick industry, after inquiry. Section 17 deals with 'Powers of Board to make suitable orders on the completion of inquiry' to the company so as to make its networth exceed its accumulated losses within a reasonable time or to direct the operating agency to prepare a scheme in the manner provided in section 18. Section 19 deals with 'Rehabilitation by giving financial assistance'. Section 20 refers to the winding up of the industrial unit if it is not likely that the Company will be ab....
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....d upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. (4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be under sub-section (2), it may appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest. "Section 22(1): Suspension of legal proceedings, contracts, etc.-Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like aga....
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....ontended in some High Courts that the word 'may' in that section shows that the BIFR has power to reject a reference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under section 16(1) that it can be said that the 'inquiry' as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when section 16(1) says that the BIFR can conduct the inquiry 'in such manner as it may deem fit', the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company's assets, liabilities, etc. ....
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....6. For the present purpose, we are not referring to the other Chapters which are not very relevant. 26. The Division Bench of the Calcutta High Court in Bengal Lamps Ltd.'s case (supra) - which case has been relied upon by the Bombay High Court in the impugned order dated 8-8-1997, - has held that at the stage of registration of the reference under section 15 of the Act read with regulation 19 (in Chapter II of the Regulations which refers only to section 15), there can be no question of commencement of any 'inquiry' referable to section 16. Such an inquiry can be treated as having commenced only at the stage of section 16 read with regulation 21 (in Chapter IV of the regulations which refers to section 16). On that reasoning it held that there can be stay as contemplated by section 22 only when section 16(1) stage of inquiry has arrived and not at the stage of section 15 dealing with registration of the reference. It further held that it is only when the BIFR, i.e., the Bench of the BIFR issues notices under section 16(1) for inquiry or asks the operating agency to inquire, - that the 'inquiry' can be said to have commenced. This line of reasoning has been a....
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....ch for knowledge; investi- gation: a question'. 29. Inasmuch as under the latter part of regulation 19(5), it is necessary that simultaneously with the registration of the reference, information/ documents are to be called for from the informant - the 'inquiry' must, in our opinion, be deemed to have commenced under section 16 at that stage itself, namely, at stage of the second part of regulation 19(5) and it is no longer permissible to say that such a stage is reached only when the BIFR issues notices and starts an inquiry under regulation 20 calling for additional information 'in relation to the inquiry' or only when orders are passed by the BIFR under regulation 21, read with section 16(1). The result is that strictly speaking, after the amendment of regulation 19(5) on 24-3-1994, the latter part of regulation 19(5) falls into Chapters III and IV of the regulations which are referable to 'Inquiries' under section 16, rather than into Chapter II which deals with 'Reference' under section 15. The Chapter headings cannot, in our opinion, be treated as rigid compart- ments. 30. There can, therefore, be no difficulty in holding that after th....